Facts of the Case

M/s Pandey Transport Co., engaged in the business of transportation of goods, was subjected to scrutiny assessment under Section 143(3) of the Income-tax Act. During the assessment proceedings, the Assessing Officer observed that freight payments had been made to truck operators without deduction of tax at source. The Assessing Officer treated such payments as liable for TDS under Section 194C and disallowed the expenditure under Section 40(a)(ia). The CIT(A) confirmed the disallowance. Aggrieved, the assessee filed an appeal before the Income Tax Appellate Tribunal.Issues Involved

  1. Whether freight payments to truck operators attracted TDS under Section 194C.
  2. Whether disallowance under Section 40(a)(ia) for non-deduction of tax was justified.
  3. Whether the nature of payments fell within the special provisions applicable to transport operators.

Petitioner’s (Assessee’s) Arguments

  • The assessee contended that the payments were made to individual truck operators.
  • It was argued that such payments did not constitute contractual payments requiring TDS under Section 194C.
  • The disallowance under Section 40(a)(ia) was therefore unwarranted.
  • The assessee requested deletion of the addition sustained by the CIT(A).

Respondent’s (Revenue’s) Arguments

  • The Revenue submitted that the payments were made in pursuance of transport contracts for carriage of goods.
  • Accordingly, tax was required to be deducted at source under Section 194C.
  • In the absence of TDS, the Assessing Officer rightly disallowed the expenditure under Section 40(a)(ia).
  • The order of the CIT(A) was justified.

Court Order / Findings (ITAT Allahabad)

The Tribunal examined the nature of payments made to truck operators and the applicability of TDS provisions. It observed that in the transport sector, payments to individual truck owners operating goods carriages may not automatically attract TDS under Section 194C, particularly when covered by special provisions governing such operators.

Considering the facts and circumstances of the case, the Tribunal held that the disallowance made under Section 40(a)(ia) was not sustainable. Accordingly, the addition was deleted.

Important Clarification

The Tribunal clarified that the applicability of TDS provisions in transport cases must be examined carefully with reference to the nature of arrangement, ownership of vehicles, and statutory exceptions. Blanket application of Section 194C without proper analysis is not justified.

Link to download the order –https://itat.gov.in/public/files/upload/1604492301-ITA%2012%20smc%20Pandey%20Transport%20Agency.pdf

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